Investing in property can be an expensive business and where there is money there are also sharks. Today, we look at 5 indicators of possible property fraud in the industry and at how you can protect yourself from unscrupulous companies and individuals when negotiating your deals.
5 Signs Of Property Fraud
- The Company Has A Poor Website and Incomplete Contact Details
- The Reservation Fees Or Deposits Are Too High
- You Can’t View The Property
- The Company Fails To Provide Full Details
- You’re Dealing With A Pushy Salesperson
1. The Company Has A Poor Website and Incomplete Contact Details
Before you enter into any kind of property deal with a company you need to know what that company is all about.
There are a lot of companies in the property investment industry – property is a high-value area – that will try and sell properties on the back of a document sheet or a one-page website, promoted using online adverts.
A lack of information should ring some alarm bells.
If the contact details look a bit sketchy and incomplete, or, if there is only the one deal on the site, then you will want to be finding out a lot more about the company before you proceed.
Because, this in itself, is not a definite sign that the company is not legit. But, you need to bear in mind just how easy it is for people to build one-page sites and start advertising. And, when it comes to property, the deposits alone can be very high.
So, you want to make sure that any company you are choosing to deal with has got some pedigree and has been around for a while.
Maybe, they have some online reviews or are willing to introduce you to a few of their previous clients.
If you talk to the company you should try and understand how their sales cycle works and exactly how their deals are structured. By having those in-depth discussions you should be able to get a sense of whether this is a brand-new company that is more interested in short-term gain than a long-term future.
2. The Reservation Fees Or Deposits Are Too High
The second thing to watch out for is high reservation fees or deposits. To read more about this you can see our article on property scams where we go into reservation fees in detail.
Most property deals in the UK will require a deposit or reservation fee of between £500 to £1,000. If you are dealing with a company that is asking for a lot more than that then that could be a sign that the company is not legit.
So, whether you are looking at a buy-to-let, an HMO or a property to refurbish and sell on, as long as that property is fairly typical for the local area and isn’t particularly unusual regarding its on-market situation, then the reservation fee should always be around the £500-£1000 mark.
If you are looking for an unusual property – something large and expensive, maybe an off-plan development, maybe a plot of land with planning in place – then the company might be asking for a larger deposit.
You just have to use your common sense a little here. If what you are looking at is a low-value house and the deposit is very high then there might be a problem. And, of course, if you are looking at a very high-value site and the deposit is extremely low then that might also be a cause for concern.
But again, if you are concerned about the deposit, it doesn’t mean that the company is trying to scam you. But it should inspire you to do a lot more investigation.
3. You Can’t View The Property
The third thing to watch out for is the access you are given to a property to view it.
Now, not being able to gain access to view a house you are thinking of buying, can be quite normal with a rental property that is bought in a certain way.
For instance, tenanted properties that are being sold at auction are often ‘sold as seen’, meaning that the buyer will not be able to go round and view the property before they agree to purchase.
Very often, especially with regard to property auctions, it’s simply a case of not wanting to disturb the tenant with a load of viewings. So, it can be quite understandable that you might not always be able to view a property you are thinking of buying.
However, in some cases, you might find that a property sourcing agent or investment company will tell you that there is no access to viewing and you can’t see why that would be.
Take, for example, a vacant property, recently refurbished but with all work completed – there should be absolutely no reason why you wouldn’t be able to arrange a viewing on a place like that.
If you are told you can’t see it, that could indicate that there is some dishonesty on the part of the person you are dealing with.
So, the typical reasons why you might not be able to view a property are:
- It’s tenanted and they don’t want to disturb the tenant for some reason.
- It’s tenanted and they are not allowed to disturb a tenant (for instance if there is a lease with a charity or housing association.
- The property is being developed and there is building work being done, meaning that viewings are not allowed under health and safety regs (on this point, you should be able to organise a viewing for when the work is complete).
If you are told that you can’t view a property, the trick is to try and understand the reasons why.
But, if there is no clear reason why you shouldn’t be able to view before you agree to a sale then you need to be cautious about pushing forward.
4. The Company Fails To Provide Full Details
The fourth thing is to make sure that you have all the details of a property before you agree to buy. If a company is failing to provide all the necessary information then that could indicate that not all is as it seems.
Certainly, there are a lot of legitimate companies, selling property deals, who are not able to provide the full details of every property they sell on their online listings.
Maybe the property is tenanted. Maybe it’s a property where the vendor has some very specific requirements; terms they’ve set on how the property should be sold.
As such, in the early stages, you might only have access to limited information. You might have, for example, only the street name and a postcode, but no house number.
Not having access to all the information on a given property is normal, in the early stages. But, you should still have enough to go on to do your due diligence.
You should still be able to see if the location is right and have enough to go on to make a rough calculation of rental yield.
Whether you are new to investing in property or a seasoned landlord, the most important factor in growing your property portfolio is your ability to calculate rental yield.
You should be able to tell what condition the property is in and what tenant profile the house will most likely suit.
You should know whether or not the property is currently tenanted and for how long.
But, when you get to the stage where you are paying a deposit or reservation fee, you should receive the full details of the property, and if you don’t, you need to think twice about what you are doing.
So, you’ll want the full address, you’ll want to be able to view the house (if possible), you’ll want the full details on the sales cycle.
And, if you get the sense that the investment company is withholding any information then that could be a sign that something is perhaps a bit amiss.
5. You’re Dealing With A Pushy Salesperson
The fifth and final thing you need to watch out for are pushy salespeople.
We’ve all had the same experiences of pushy sales tactics whether it’s buying a house or a car. Estate agents can be particularly bad for pushing their customers to make a decision and put in an offer when perhaps their customers aren’t ready to act.
Ultimately, there will be scenarios where time is of the essence and a salesperson is doing their level best to try and find you the right project, in the right timeframe, at the right price.
But in scenarios such as this, you, as an investor, have to make a decision on whether that property works for you.
You should never allow yourself to be pushed into making a decision on any property deal. In the end, it should be down to you and you must take as much time as you need to come to a decision.
Sometimes, you might lose a property because of the time it takes to complete your due diligence; your research. But that’s ok.
It’s more important for you to be comfortable with a deal than it is to be fast in coming to a decision. And if you’re not comfortable, your best bet is to walk away. Always trust your gut, but never leap without looking. There will always be other opportunities.
If you have a very aggressive salesperson, pushing you, then again, try and understand the context. They might have a very reasonable, or good reason for pushing you. But, there is also a chance that there is something more unscrupulous is going on.